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On the Feasibility of Perpetual Growth in a Decentralized Economy Subject to Environmental Constraints

Author

Listed:
  • Jean-Francois FAGNART

    (CEREC, Facultes universitaires Saint-Louis, Brussels and Department of Economics, Universite catholique de Louvain, Louvain- la-Neuve.)

  • Marc GERMAIN

    (EQUIPPE, Universite de Lille 3 and Department of Economics, Universite catholique de Louvain, Louvain-la-Neuve)

Abstract

We propose an endogenous growth model of a decentralized economy subject to environmental constraints. In a basic version, we consider an economy where final production requires some material input and where research activities allow simultaneously productive firms to reduce the dependency of their production process on this input and to improve the quality of their output. We adopt a material balance approach and, in spite of the optimistic assumption that the material input is perfectly recyclable (and thus never exhausted), we show that material output growth is always a transitory phenomenon. When it exists, a balanced growth path is necessarily characterized by constant values of the material variables, long term economic growth taking exclusively the form of perpetual improvements in the quality of consumption goods. The material resource constraint is not solely a long term issue since it is also shown to affect the whole transitory dynamics of the (material) growth process. Renewable energy is introduced in an extension of our basic model. This extension does not affect qualitatively the features of a feasible balanced growth path but make its conditions of existence more restrictive.

Suggested Citation

  • Jean-Francois FAGNART & Marc GERMAIN, 2009. "On the Feasibility of Perpetual Growth in a Decentralized Economy Subject to Environmental Constraints," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2009037, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2009037
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    Cited by:

    1. Fagnart, Jean-François & Germain, Marc, 2011. "Quantitative versus qualitative growth with recyclable resource," Ecological Economics, Elsevier, vol. 70(5), pages 929-941, March.

    More about this item

    Keywords

    material balance; endogenous growth; recycling;

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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